So once "The Real World" became successful, MTV realized that they could spend less money per hour having people be dipshits for basically free, and then use that platform to have other companies pay THEM to work advertising into MTV's product, thus making it doubly cheap.

And the MPAA was fine with this somehow, which I don't understand, because to me, videos are still ads for music.

But then, I was born when AT&T was still the only phone company, so my opinions and beliefs mean nothing.

That's all probably pretty accurate. The other part is that the labels are, how shall we say, a little territorial about their business, and MTV came out of nowhere to be a tastemaker that they hadn't anointed. (Devo was briefly popular due to MTV. DEVO.) I would not be at all surprised to find out that the terms under which MTV was able to air the videos got increasingly expensive and onerous as the years wore on. (cf our host's epic rant about webcasting licenses: the labels don't care if you're making money for them, they just want you dead.)

Check this out: Apparently (and this is maybe just a media story) MTV was heavily influenced by the proclivities of its chair which resulted in this (skip to e.g. 13:40). Why doesn't someone do an Indiegogo campaign to help Viacom management do a juried competition?

I was under the impression (from an investigative news show from the mid-80's, the title of which my then-prebescent mind failed to take note of)) that MTV was paid to play music videos by the people who produced them.

So, AFAICT, it used to work like this: Music video is produced. Music video producer offers to pay [A} MTV to play said video. MTV accepts, while interspersing advertising (for which they are also paid [B]).

Nowadays, it works like this: MTV produces and broadcasts stupid reality shows that they produce themselves. This costs money [C]. MTV intersperses advertising for these programs, for which they are paid [D].

As long as (D-C) > (A+B), this will remain the status quo. (Perhaps as it should for the benefit of the shareholders, though it doesn't take a statistician to say which method is easiest for the folks doing the work while incidentally providing music videos for viewers.)